Bhartiya Vehicles And ... vs The National Airports Authority ...
2006 Latest Caselaw 298 Del

JUDGMENT

Sanjay Kishan Kaul, J.

IA No 3760/1995(under Section 30 and 33 of Arbitration Act, 1940)

1. The petitioner is a limited company engaged inter alia in the manufacture and assembly of Crash Fire Tenders (for short, 'CFTs'). The petitioner is stated to have supplied such tenders to different departments of Government of India including the respondent. A requisition was sent by the Director General of Technical Development of the respondent on 13.09.1989 to the petitioner for supply of tenders on an urgent basis which was followed up with the respondent inviting quotations from the petitioner for supply of 56 such CFTs as per the letter dated 24.10.1989. The petitioner submitted the offer vide letter dated 25.10.1989 specifying the price of 40,27,625/- per piece on terms and conditions as set out in the letter. The price indicated was ex- factory, Sahibabad, UP, and any taxes and duties were liable to paid by the respondent. Negotiations were held thereafter between the parties and the price was reduced to Rs. 31,20,000/- per CFT in view of the bulk order as well as the change in technical specifications. This settlement at reduced prices is stated to have been made subject to exchange rate variation in accordance with Indo- Czech Trade and Payment Agreement dated 04.12.1974 which was governing the trade between the two countries. In terms of this Trade and Payment Agreement, all commercial contracts where the period from the date of signing of the contract to the date of payment extended beyond one year, it was permissible to safeguard the amount of payment falling beyond one year on the basis of SDR and the RBI, Bombay was to advise the Indian parties the SDR-rupee rate. The respondent accepted the terms of the offer and issued the supply order dated 16.12.1989. In terms of this supply order, the price of one CFT was specified at Rs 31,20,000/- (firm and fixed) including customs and all duties. The Central Sales Tax was to be paid extra at 10 per cent at the time of delivery. The price was also inclusive of custom duty at the rate of Rs. 2,09,232/- per unit. Any increase or decrease in custom duties was to be adjusted on the basis of actuals paid at the time of clearance as assessed by the custom authorities at any time thereafter. Any refund of custom duties was in turn to be paid back to the respondent.

2. The entire quantity of 56 CFTs was to be supplied in six months commencing from the date of the receipt of the import license and was to be completed within one year. The parties entered into an agreement dated 09.08.1990 indicating the terms and conditions specified in the supply order and making all the offers, letters exchanged and the minutes of the meeting held on 04.12.1989 and 12.12.1989 (for negotiation of price) as part of the agreement.

3. The supply of 56 CFTs was to be dependent on the availability of import license to be granted to the petitioner which in turn required the clearance of a number of authorities. The import license was granted on 21.03.1990 only for 19 chassis out of which 12 were designated for the respondent. The petitioner informed the respondent on 22.06.1990 that it had completed the manufacture of the indigenous content of all the 56 CFTs and that the same had been inspected by the officers of the respondent. A further information was sent to the respondent about the delivery of 10 CFTs and that the remaining two earmarked for the respondent would be delivered shortly. The import license for the remaining 44 CFTs was, however, received only on 30.01.1991 and all the CFTs were supplied within one year from the said date. The petitioner claimed that whatever was within the hands of the petitioner was done, but due to delay in issuance of import license there was some time lag and the respondent had acknowledged the efforts of the petitioner as per a review meeting held on 30.04.1991.

4. The petitioner claimed that the execution of the contract was prolonged resulting in increased cost and losses for the petitioner and this prolongation was on account of delay in issuance of import license. Such increase in costs and losses is stated to be on account of devaluation of Indian Rupee and additional burden for increase in customs and excise duties and the petitioner wanted to be compensated for the same. The respondent however denied the same.

5. The aforesaid issue gave rise to disputes between the parties and in view of there being an arbitration clause, agreed to between the parties, the petitioner filed a petition before this court under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as the 'Said Act'). The respondent referred the disputes for arbitration on 06.01.1993 during the pendency of the petition. There were seven claims raised by the petitioner, but in principal there were really only three heads of claims as the other amounts were towards interest accrued on those claims and costs of proceedings. These are claims No. (i), (iii) and (v) on account of excise duty, exchange rate variation by reason of devaluation of Indian Rupee and increased cost of indigenous content on the 56 CFTs.

6. The claim was resisted by the respondent No. 1 on the ground that the respondent No. 1 was given to believe that the petitioner was in a position to supply the CFTs urgently and that the chassis of all the 56 would be imported in one go. The respondent blamed the claimant for lack of effective steps which resulted in delay in delivery for which in fact the petitioner was held to be responsible to compensate the respondent. An important aspect raised by the respondent was that the final payment was made to the petitioner on 24.01.1992 and it was accepted by the petitioner without any protest and thus it was not open to the petitioner to re-agitate the issue in view of the settlement of the claim.

7. The respondent claimed liquidated damages at the rate of one per cent of the price of undelivered goods per month subject to a maximum of 5 per cent of the contract value. Thus on failure of the petitioner to deliver more than 12 CFTs within time, liquidated damages on that account were claimed. The respondent also claimed interest on the amount of the advance payment, failure of the petitioner to pay sales-tax on the value of goods to the Central Government which had been paid by the respondent apart from interest and costs.

8. The sole arbitrator appointed by the respondent Sh. S. Ramaiah made and published his award dated 25.11.1994. The arbitrator allowed the claim on account of excise duty along with interest at 18 per cent per annum as also the amount on account of exchange rate variation and cost of arbitration. The respondent aggrieved by the award has filed the present objections under Sections 30 and 33 of the Arbitration Act, 1940. The first aspect agitated by learned senior counsel for the respondent arises from the plea that there are in fact no disputes which were arbitrable since full and final payment was made by the respondent on 24.01.1992. This plea of the respondent is specifically set out and recognized even by the arbitrator as part of para 13 of the award. Learned senior counsel referred to the judgment of the Division Bench of Bombay High Court in Union of India v. Ajit Mehta and Associates to advance the proposition that it was not open to the petitioner to re- agitate the issue in arbitration once having accepted the payment without demur or protest. The said judgment has referred to various judgments of the Apex Court including of Damodar Valley Corporation v. K.K. Kar wherein the dispute related to the repudiation by the Corporation of a contract to supply coal in view of the fact there was failure to supply coal in accordance with terms of the contract. The contractor was paid for the supply of coal including the return of deposit amount and all claims were finally settled. The contractor claimed damages for repudiation of the contract after receiving the payments. In the said circumstances, it was held that the question of unilateral repudiation of the rights and obligations under the contract or of a full and final settlement of the contract relates to the performance or discharge of the contract and hence, far from putting an end to an arbitration clause, they fall within the purview thereof. I am, thus, unable to appreciate how the same would help the respondent. No doubt there are certain observations made by the Division Bench to the effect that the law laid down is that in spite of full and final settlement of a claim, arbitration clause in a contract may subsist where the party invoking it alleges that there was no accord and satisfaction for some reasons such as final bill was submitted or receipt was given under coercion, mistake or misrepresentation, without prejudice, under protest etc., but where there is no such allegation made when invoking the arbitration clause and it is invoked simplicitor, it will have to be held that the contract itself had come to an end and with it the arbitration clause which is part and parcel of it. However, I am of the considered view that that would be a case where such a final satisfaction is accorded.

9. Learned senior counsel also referred to the judgment of the Apex Court in Continental Construction Co. Ltd. v. State of M.P. to contend that the arbitrator was required to address the jurisdiction issue which it had failed to do. There was full and final payment as per pre-receipt bills without demur or protest.

10. The present fact shows that the petitioner had in fact filed the petition under section 20 of the said Act and it is during the pendency of the petition that the designated authority of the respondent itself agreed to refer the disputes to arbitration as claimed for by the petitioner. Not only that the respondent itself raised certain counter claims and both the claims and counter claims have been adjudicated upon. This itself would show that there were disputes between the parties which were liable to be referred to arbitration. Learned counsel for the petitioner referred to the Judgment of the Apex Court in Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders and Contractors , to contend that even where rights and obligations of the parties are worked out, the arbitration clause can be invoked. In this behalf, it was also contended that the parties are often in unequal bargaining positions and the weaker party has to succumb to the stronger party. The respondent would not even have paid the amount which was due and thus the receipt of the amount from the respondent does not absolve the petitioner from raising the claims which according to the petitioner were due under the terms of the contract. It was observed in Para 27 to 30 as under:

27. Even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising there under, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut our eyes to the ground reality that in a case where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a 'No-Demand Certificate' is signed. Each case, therefore, is required to be considered on its own facts.

28. Further, necessitas non habet legem is an age old maxim which means necessity knows no law. A person may sometimes have to succumb to the pressure of the other party to the bargain who is in a stronger position.

29. We may, however, hasten to add that such a case has to be made out and proved before the arbitrator for obtaining an award.

30. At this stage, the Court, however, will only be concerned with the question whether tribale issues have been raised which are required to be determined by the arbitrators.

11. A perusal of the observations of the Apex Court, in my considered view, leaves no manner of doubt that in cases like the present one, the petitioner could not have afforded not to take the payment which the respondent was admittedly liable to pay and a public sector like the respondent would have an upper hand. But that would not mean that the petitioner is absolved from raising the claims.

12. The plea which the respondent sought to advance was in fact the very plea which was considered in the aforesaid judgment as the counsel for the NTPC Ltd. had urged that the contract itself had come to an end upon execution of 'no demand certificate' and together with the same the arbitration clause had also perished. In this behalf judgments of the Apex Court in P.K. Ramaiah and Co. v. Chairman and MD National Thermal Power Corporation 1994 Supp (3) SCC 126; Nathani Steels Ltd v. Associated Constructions 1995 Supp (3) SCC 324 were relied upon. These are the judgments which the respondent was also seeking to rely upon in the present proceedings. On the other hand, the plea advanced by the contracting party was that despite the contract coming to an end, the arbitration clause survives and all questions arising out of or in relation to the execution of the contract are referable to arbitration. It is in this context that the apex court referred to the observations in Damodar Valley Corporation Case (Supra) as referred to aforesaid where in para 6 it was observed as under:

6. It appears to us that the question whether there has been a full and final settlement of a claim under the contract is itself a dispute arising 'upon' or 'in relation to' or ' in connection with' the contract. These words are wide enough to cover the dispute sought to be referred.

13. The Supreme Court took note of the fact that in P.K.Ramaiah Case (Supra), the amount was received unconditionally and full and final satisfaction was acknowledged by a separate receipt. This is not so in the present case. The judgment of Jayesh Engineering Works v. New India Assurance was referred to with approval, wherein it was observed in para 1 as under:

Whether any amount is due to be paid and how far the claim made by the appellant is tenable are matters to be considered by the arbitrator. In fact, whether the contract has been fully worked out and whether the payments have been made in full and final settlement are questions to be considered by the arbitrator when there is a dispute regarding the same.

14. The conspectus of the aforesaid discussion thus, in my considered view, leaves no manner of doubt that the arbitrator was not shut out from going into the disputes nor could it be said that the the petitioner was precluded from raising the disputes.

15. In fact, learned counsel for the petitioner contended that there was not even a ground raised in this behalf in the objections and merely because the arbitrator has noted this plea in a passing reference cannot be a ground to agitate this issue. This is more so as even while appointing the arbitrator, the designated authority of the respondent as per the letter dated 06.01.1993 had stated that all disputes arising between the parties including the claims and counter claims under the contract were being referred to arbitration. I am in agreement with this submission of the learned counsel for the petitioner. In the present case, there is no certificate of 'full and final settlement / payment'.

16. The next question is on merits of the two claims awarded by the arbitrator. In this behalf, it may be noted that it was not disputed by learned counsel for the parties that this court does not sit as a court of appeal nor is it the function of this court to re-appreciate the evidence. So long as the view taken by the arbitrator is a plausible view, though perhaps not the only correct view, an interference with the award would not be called for. In this behalf the judgments of the apex court in Sudarsan Trading Co. v. Govt of Kerala and Arosan Enterprices Ltd. v. Union of India and Anr. 1999 (3) Arbitration Law Reporter 310 may be referred. There is also no dispute that the arbitrator is a legal person being a ex-Law Secretary and has written a detailed and reasoned award. Thus the scrutiny of the objections has to be within the said parameters.

17. Despite the aforesaid legal position, it can also not be disputed that if that that arbitrator is a creation of the contract between the parties and it is not for an arbitrator to go beyond the terms of the contract. An arbitrator cannot re-write the contract and thus the award must be in conformity with the terms of the contract. However, if it is a matter of the reading of a contract in a particular manner, even if the court may come to a different equally plausible conclusion, would be no ground to interfere. The material document in this behalf to be seen is the supply order which was ultimately placed on 26.12.1989. Whatever happened prior to that was a stage of pre-contract negotiations in which the petitioner offered to make a supply in terms of the letter dated 25.10.1989 which was revised on 04.12.1989 and 12.12.1989 in view of the discussions held between the parties. The other relevant document is the formal agreement which was executed subsequently on 09.08.1990.

18. The substratum of the decision of the arbitrator arises from the finding arrived at that the quotations and the minutes of the meeting also form a part of the contract. In this behalf, it would be relevant to reproduce the covering letter of the supply order, which is as under:

NATIONAL AIRPORT AUTHORITY DIRECtorATE OF EQUIPMENT SAFDERJUNG AIRPORT NEW DELHI - 110 003

No. 2-22/89-ARII(EQ) Dated 26.12.1989

M/s. Bhartiya Vehicles and Engg. Co. Ltd., A-29, Industrial Area Site -4, Sahibabad, Ghaziabad.

Sub: Supply of Crash Fire Tenders 8200 litres Pneumatic wheel type.

Ref: Your quotation No. CFT-113/285/89 dated 25.10.89 CFT-115/285/89 dated 25.10.1989

ii) Your quotation No. CFT-115/304/89 dated 04.12.1989

iii) Minutes of the meeting held on 04.12.1989 and 12.12.1989 and,

iv) Your confirmation letter No. CFT-115/09/89 dated 12.12.1989.

v) Advance Supply Order No. 2-22/89-ARII (EQ) dated 15.12.1989

Dear Sir,

Please refer to your quotations/discussions cited above. These have been accepted and a formal supply order is hereby placed on you for and on behalf of the Chairman, National Airports Authority for supply of items mentioned in Schedule 'A; containing terms and conditions. No other terms and conditions will govern this contract.

19. The supply order refers to the quotations, minutes of meeting and the confirmation letter stating that the same have been accepted and a formal supply order is being placed. However it is relevant to note that these have been accepted as per the terms and conditions contained in the supply order. As a precaution, it has also been observed that no other terms and conditions will govern this contract. Thus the reference to what had transpired before was in the context of the proposals and counter proposals made by the parties. The final terms were only set out in the purchase order dated 26.12.1989. The clause 10 of the said supply order dealt with the price per unit and is as under:

CONDITIONS OF CONTRACT

10. Price/Unit:

i) Rs. 31,20,000/- each (firm and fixed) including custom duties and all other duties.

ii) Central Sales Tax shall be paid extra @ 10 per cent at the time of delivery.

iii) the above prices are inclusive of custom duty @ Rs. 2,09,232/- per unit of Crash Fire Tender. Any increase/decrease in the custom duty shall be adjusted on the basis of actuals paid at the time of clearance or as assessed by the customs authorities any time thereafter. In the event of any refund received in respect of Custom duty after it has been paid, it shall be paid back to NAA.

20. A reading of the aforesaid shows that the price fixed was of Rs 31,20,000/- per unit 'firm and fixed'. Whatever was extra to be paid was provided therein. The firm and fixed prices specifically included custom duties and all other duties. Central Sales Tax was to be paid extra at the rate of 10 per cent at the time of delivery. In case of any refund received in respect of custom duties, after it had been paid, the same was to be refunded back to the respondent by the petitioner.

21. The supply order was followed up with the agreement dated 09.08.1990. The contract documents referred to the award of Contract dated 26.12.1989 along with the earlier offer of the contractor dated 25.10.1989 and the letters dated 04.12.1989 and 12.12.1989. All the documents were to form an integral part of the agreement as per article 2.01. It may be noticed that Article 2 dealt with contract documents. However, there is also clause 2.02 which is as under:

All the aforesaid contract documents mentioned in para 2.0 shall form an integral part of this agreement, in so far as the same or any part thereof conform to what has been specifically agreed to by the owner in its letter of award No. 2-22/89ARII (Equp) dated 26.12.1989. Any matter inconsistent therewith, contrary turn repugnant thereto or any deviations taken by the contractor in its 'proposal' not agreed to by the owner in its letter of award No. 2-22/89-ARII (Equp) dated 26.12.1989 shall be deemed to have been withdrawn by the Contractor. For the sake of brevity this Agreement along with its aforesaid contract documents shall be referred to as the 'Agreement'

22. The aforesaid clause clearly stipulates that while all the documents referred to before the clause form an integral part of the agreement, the same was only to the extent that they had been specifically agreed to by the letter of award dated 26.12.1989. Any matter inconsistent therewith, contrary or repugnant thereto or any deviations taken by the contractor in its proposal not agreed to in the letter dated 26.12.1989 were deemed to have been withdrawn by the contractor. This leaves no manner of doubt as to what was the agreement between the parties. The contractual documents refer to all that was exchanged between the parties, but what was binding the parties were only the final contractual documents which were the purchase order dated 26.12.1989 followed up by the agreement dated 09.08.1990.

23. A reference to the award shows that the arbitrator has clearly travelled beyond what were the terms of the contract. The arbitrator has sought to justify the claims and award on the basis of proposals submitted by the petitioner which may have referred to certain additional terms whether in respect of excise duty or in respect of exchange rate variations. However, that were the proposals and not the final contract. In view of the final contract, it was not for the arbitrator to go into and see the discussions between the parties which culminated in the ultimate contract. It is the ultimate contract which had to be seen. The conclusion which the arbitrator has arrived at is in the teeth of the contract.

24. The limits to the jurisdiction of the arbitrator while construing such contracts are obvious as set out by the Apex Court in Alopi Parshad v. Union of India , where in para 19 it was observed as under:

19. The original agreement dated May 3, 1937 was modified by the supplementary agreement dated June 20, 1942, and arbitrators have held that the modified agreement was binding upon the Agents. By the agreement as modified, a graded scale was fixed for the establishment and the contingencies to be paid to the Agents, and also for the mandi charges and overhead expenses. the arbitrators still proceeded to award an additional amount for establishment and contingencies and an additional amount for mandi charges. By clause 14(1), read with clause 12(b)(2) of the agreement, the rate at which establishment and contingency charges were to be paid, was expressly stipulated, and there is no dispute that the Government of India have paid to the Agents those charges at the stipulated rate for ghee actually purchased. The award of the arbitrators shows that the amount actually received from the Government, totalled Rs 6,04,700-9-0, whereas, according to the accounts maintained by the Agent, they had spent Rs 6,77,542-0-3. Granting that the Agents had incurred this additional expenditure under the head 'establishment and contingencies', when the contract expressly stipulated for payment of charges at rates specified therein, we fail to appreciate, on what ground, the arbitrators could ignore the express covenants between the parties, and award to the Agents amounts which the Union of India had not agreed to pay to the Agents. The award of the arbitrators, awarding additional expenses under the head of establishment and contingencies, together with interest thereon, is on the face of it erroneous.

25. Interestingly it may be noted that the arbitrator has proceeded on some notion that the goods could be cleared without a gate pass which would be contrary to the terms of the Central Excise and Salt Act, 1944 and the rules made there under.

26. The arbitrator came to the conclusion that the respondent could not be blamed for the delay as it was not the State/government which gave the license. It was the job of the petitioner to have arranged the license. The arbitrator has not put any liability on the petitioner on account of delay as the petitioner did what was within its power to get the license but the license was issued in two Installments and there was some delay. The net result of this would that there would be no liquidated damages to be imposed on the petitioner and thus the arbitrator to that extent rightly rejected the counter claim of the respondent. This, however, does not mean that the respondent would become liable as a consequence of there being any delay in issuance of the license when it is the agreed term between the parties that the price is fixed and firm. It is the business exigency which the petitioner ought to have taken into account while making the quotation of the firm and fixed price and to agree with the conclusion of the arbitrator would amount to re-writing the contract. This is not something which the arbitrator could have done. This is the position not only with respect to the excise duty but also with respect of exchange rate variations arising from devaluation of rupee. If the rupee value would have increased, the petitioner would not have reduced the price and similarly cannot burden the respondent with such exchange rate variations. The petitioner did put this exchange rate variation as part of its initial proposal, but that is not what were the final terms of the contract. The conclusion of the arbitrator that such exchange rate variation was not inconsistent with the final terms of the contract cannot be accepted because this goes contrary to the stipulation in the contract of the price being 'firm and fixed'. The petitioner also apparently understood the terms as such and thus the bills raised did not contain any excess or differential in excise duty or any such further claims. It is clearly an afterthought on the part of the petitioner on the basis of what the petitioner perceived to be not so successful commercial venture on its part arising from intervening circumstances. As noticed above, this is a matter of business risk or business foresight and cannot be used to burden the respondent.

27. The plea of learned counsel for the respondent is that the petitioner did not even pay to its principals nor did principals enforce payments in respect of exchange rate variations. Be that as it may, one is only concerned with what the terms of the contract agreed to between the parties.

28. In view of the aforesaid, I am of the considered view that the award by the arbitrator on merits cannot be sustained in respect of grant of two claims and interest thereon and the award is liable to be set aside.

29. The application is accordingly allowed.

CS(OS) No. 308A/1995

1. In view of the award being set aside, the award is not liable to be made rule of the court. The suit is dismissed leaving parties to bear their own costs.